Qualifying Facility and Avoided Cost Return Rate

[Ryushin]

So I'm in the process of building my 36.82 kW system going on my house. Part of this is the interconnection agreement with my electric company CORE (IREA). Since I'm going to be larger than 10kW, I can't do Net Metering. But I can become a Qualifying Facility to sell back my excess to the grid at the current rate of 5.5 cents kW/h. I was originally thinking that this was a "wholesale rate", but I guess not. They call it an Avoided Cost.

Here is an excerpt of the email I received after I started the Interconnection Request:

As a Qualifying Facility (QF), you will enter into a Power Purchasing Agreement (PPA) with CORE. Rather than receive a 1:1 NET meter credit for the excess energy you deliver to our grid, we would simply purchase your excess energy from you at our avoided cost (currently $0.055/kWh). The avoided cost of energy in this context refers to the cost associated with fuel, purchased energy, generated and purchased capacity, and line losses (expressed as a per-kilowatt-hour (kWh) cost) CORE can avoid by purchasing the energy from an interconnected member. CORE’s avoided cost through April 2023 was 4.8 cents per kilowatt-hour (kWh). Our avoided cost from May 2023 through April 2024 is 5.5 cents per kilowatt-hour (kWh). However, as large-scale renewable energy becomes more available, the cost to generate is being reduced. Some predict it will be less than $.02/kWh or even zero within the next 2 to 5 years. A common misconception is that you will receive net meter credits up to 10kW and then receive a credit based upon our avoided cost for anything above 10kW. You are either a NET metered member or a QF (not both) based upon your installed system size (AC voltage).
An example of a QF billing statement may look is as follows:
kWh Delivered = 650 kWh
kWh Received = 700 kWh
Billable kWh = 650 kWh ($.11627 x 650) = $75.58
Avoided Cost Credit = 700 kWh ($.055 x 700) = ($38.50)
kW Peak (4pm to 8pm) = 4.2 ($2.00 x 4.2) = $8.40
Service Charge = $13.50
Total (not including taxes/fees) = $59.98

I was thinking that rate of 5.5 cents would go up or stay the same. From that they are saying, it could drown to 2 cents or even go to 0. This sounds ludicrous to me. If I'm a QF and I send power to the grid, I should at least receive a wholesale cost for that electricity, minus the interconnection cost to be connected to the grid.

I was actually planning on that 5.5 cents back to make the ROI quicker as I figured I would see about $1200 a year back from the utility.

I have to think that I'm not understanding something. If they say their Avoided Cost is 0 cents, how can the electric company receive power from me and not pay me for it.

Any insight would be appreciated.

 

[zanydroid]

It's quite possible for zero or negative wholesale prices to happen during peak production of renewables. In fact this (negative) has happened before for EG windpower in some markets.

Google for "negative power prices wind" shows a hit as top result

FWIW this is also a major risk for personal ROI calculations/long term policy sustainability of Net Metered solar due to the mid-day hump.

 

[zanydroid]

Also, if you have a grid profile that requires you to turn on 1741SA/SB features, where there is some distributed control of power generation, in theory you could get hit twice:

• Your power output is curtailed by *-watt (frequency, voltage, whatever) control function due either natural (EG overvoltage from a lot of PV being pushed to grid near you) or explicit backpressure from grid (EG from utility adjusting the grid parameters)
• You get paid much less per kWh